Sherratt (W. A.) Ltd v John Bromley (Church Stretton) Ltd

JurisdictionEngland & Wales
Judgment Date02 November 1984
Judgment citation (vLex)[1984] EWCA Civ J1102-3
Docket Number84/0405
CourtCourt of Appeal (Civil Division)
Date02 November 1984
W.A. Sherratt Limited
(Plaintiff) Appellant
John Bromley (Church Stretton) Limited
(Defendant) Respondent

[1984] EWCA Civ J1102-3


The Master of the Rolls (Sir John Donaldson)

Lord Justice Oliver

Lord Justice Robert Goff


1981 W. No. 420







Royal Courts of Justice.

MR. DAVID RITCHIE (instructed by Messrs. Garrard Mitchell & Co.) appeared on behalf of the (Plaintiff) Appellant.

MR. R.D. ADKINS (instructed by Messrs. Edge & Ellison Hadwell Pritchett & Co.) appeared on behalf of the (Defendant) Respondent.


This is an appeal from an order of Mr. Justice Hutchison made on the 18th April, 1984 by which he reversed a decision of the district registrar refusing the defendants' application for payment out to them of a sum of £13,000 in court and adjourning the plaintiffs' application to accept that sum out of time in satisfaction of their claim.


The relevant facts can be very briefly stated. The plaintiffs (the present appellants) commenced an action against the defendants on the 21st September, 1981 claiming some £36,000 as due to them under the terms of an agreement under which certain business assets were sold to the defendants. They sought a judgment under Order 14 but were met by an affidavit which exhibited a defence and counterclaim said to overtop the claim. Shortly after this affidavit was sworn the defendants paid into court a sum of £13,000 stated in the notice of payment in to be in satisfaction of the plaintiffs' claim after taking into account the counterclaim. The plaintiffs did not proceed with their Order 14 summons, but, equally, they did not accept the payment in. The action accordingly proceeded and, no doubt, further costs were incurred by the plaintiffs in the comfortable knowledge that there was a substantial sum in court.


The defendants had, in July 1981, created a debenture in favour of Midland Bank and in February 1983 a Mr. Dawes, of Touche Ross & Company, was appointed to be the receiver and manager of the defendants' business under the terms of that document. On the 12th April, 1983 the defendants went into liquidation with an estimated deficiency as regards unsecured creditors of over £370,000. In June 1983 the defendants applied to the court for payment out to themselves of the moneys in court, the affidavit in support specifying two grounds, namely that the defendant was heavily insolvent so that if the money in court were paid out to the plaintiffs it would give them a preference over the general body of unsecured creditors and that the amount of the counterclaim had increased so as to render the moneys in court excessive. That application was met by a cross-application by the plaintiffs for the money in court to be paid out to them. The defendants' claim having failed before the district registrar, they appealed to the judge in chambers and at the hearing before Mr. Justice Hutchison it was conceded on their behalf for the purposes of the argument that the plaintiffs had a good prospect of obtaining judgment in the proceedings for at least £13,000, taking into account any valid counterclaim. Thus the only question before the learned judge was whether the defendants' insolvency and the alleged preference which would be accorded to the plaintiffs if the money in court were paid out to them constituted a sufficient ground for reversing the decision of the district registrar.


In a careful judgment in which he extensively reviewed the relevant authorities, the learned judge concluded that it did. Adopting what was said in this court by Lord Justice Roskill in Peal Furniture Co. Ltd. v. Adrian Shore (Interiors) Ltd. [1977] 1 W.L.R. 464 at page 465, he held that the court had, under the provisions of Order 22 rule 1(3), a complete discretion to allow payment out to be made to a defendant, and continued:

"Approaching the matter in this way, and making full allowance for the fact that the Plaintiff's claim is to be regarded for present purposes as being an extremely strong one, it, nevertheless, seems to me that I ought to give very great weight to the desirability of allowing the rules of insolvency to determine the destiny of the debtor's assets. I think that comparatively little weight should be given to the strength of the plaintiff's claim because many unsecured creditors have undisputed claims. Why should the Plaintiff, merely because he has begun an action in which money has been paid into court, be regarded in a different light from a plaintiff who has not taken that course but, nevertheless, has an undisputed claim?

In the end, there is no escape from the conclusion that if I were to refuse the Defendant's application I should, effectively, be promoting the Plaintiff from the status of an unsecured to the status of a secured creditor."


Accordingly he allowed the appeal and ordered that the sum of £13,000 be paid out to the defendants. From that the plaintiffs now appeal to this court.


Mr. Ritchie's primary submission on their behalf is that in describing the plaintiffs as unsecured creditors the learned judge misdirected himself in law and that this, accordingly, vitiates the exercise of his discretion on well-accepted principles. He has drawn the court's attention to a number of authorities which support the proposition that where a defendant pays money into court in satisfaction of the plaintiff's claim, the plaintiff, albeit he has not taken the money out, is nevertheless treated as a secured creditor to the extent of the moneys in court in the ensuing bankruptcy of the defendant. The proposition, which is stated as still being the law in Williams & Muir Hunter on Bankruptcy, 19th edition, pages 54, 77, and in Halsbury's Laws of England, 4th edition, volume 3, paragraph 318, is based upon a line of cases starting with In re Gordon [1897] 2 Q.B. 516. That was a case in which, the defendant having been adjudicated bankrupt and his trustees having refused to agree to payment out to the plaintiff of the moneys in court, the plaintiff moved in the Bankruptcy Court for a declaration of his entitlement and for liberty to prove in the bankruptcy for the balance of his debt over and above the sum in court. Mr. Justice Vaughan-Williams said (page 519):

"…I am clearly of opinion that if the proof is admitted, or to the extent to which it is admitted, the plaintiff is a secured creditor by reason of the payment into court. The money paid into court, even with a plea denying liability, has become subject to the plaintiff's claim by the act of the defendant, who thereby agrees that the sum paid in shall remain in court subject to the conditions of Order XXII, r.6."


To the same effect is In re Ford [1900] 2 Q.B. 211.


That was in fact not a case of a voluntary payment in, but of a payment under order of the court under Order 14 as a condition of leave to defend. Mr. Justice Wright observed (page 213):

"…it is settled that where money is ordered to be paid into court to abide the event it must be treated as security that the plaintiff shall not lose the benefit of the decision of the Court in his favour…The very object of such an order is that the plaintiff shall be in as good a position, so far as the money paid in extends, against contingencies such as bankruptcy as if he had got an immediate judgment…"


A somewhat similar point, though in very unusual circumstances, arose in Dessau v. Rowley [1916] W.N. 238. That, like In re Jordon, was a case of a voluntary payment in. The plaintiff had declined to accept the payment in and proceeded with the case to the point of giving notice of trial. No further step was taken, however, for several months and the defendant was adjudicated bankrupt, a fact which escaped the plaintiff's notice. Subsequently a scheme of arrangement was approved by the court and the bankruptcy was annulled. The effect was thus that the defendant was released from debts proveable in the bankruptcy so that the plaintiff, not having proved, was unable to proceed with the action. The defendant applied to strike out the action for want of prosecution and the only question before the court was the disposition of the money in court. The argument on the plaintiff's behalf was, in reliance on the cases already referred to, that he was a secured creditor and thus entitled to rest on his security outside the bankruptcy. The contrary argument was that, there being a denial of liability, the money remained the defendant's subject to the provisions of Order 22. In this court the leading judgment was delivered by Lord Justice Swinfed-Eady. He distinguished the case from one where liability had been admitted, but said that the court had no material before it to enable it to determine to whom the money now ought to be paid. Accordingly he directed that there should be an inquiry before the master as to whether there was at the date of payment in any sum due from the defendant to the plaintiff as alleged in the pleadings. The master was then to deal with the fund according to the event.


Lord Justice Phillimore and Lord Justice Bankes concurred, the former observing that he thought the plaintiff a secured creditor and that nothing that had happened in the bankruptcy ought to deprive him of the right to have the money appropriated to meet his claim.


Finally, we have been referred to Re a Debtor [1932] 101 L.J. Ch. 372, a decision of a divisional court in bankruptcy consisting of Lords Justices Luxmoore and Farwell, where it was held that a plaintiff who had declined to accept money paid into court with a denial...

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